Kindle Change Reflects New World of Mobile
Amazon's discontinuation of its innovative deal with Sprint Nextel to power over-the-air book purchases on the Kindle e-reader points to the power of high volume and the growing role of global standardization in the mobile industry.
When the Kindle debuted in 2007, it included the ability to download books, newspapers and magazines over Sprint's third-generation EV-DO (Evolution-Data Optimized) network. The cost of using the network was built into the price of the content, so consumers could take advantage of a 3G network without worrying about carrier choice, contracts or monthly data plans. Executives across the U.S. mobile industry pointed to the arrangement as a sign of a future in which carriers could add new revenue sources and device makers could find new routes into consumers' hands.
Sprint was a natural choice for Amazon, having led the MVNO (mobile virtual network operator) business for years by letting third parties such as Samsung and EarthLink's Helio and The Walt Disney Co. buy wholesale capacity on its network and offer their own mobile services. Many MVNOs eventually sank, with observers pointing to several possible causes, but Sprint had experience in opening up its network for new uses.
However, other carriers soon began exploring new ways to use their infrastructure. As Google weighed in on the U.S. Federal Communications Commission's 700MHz spectrum auction, demanding part of the frequencies be opened to any device, Verizon Wireless said it would open up part of its network. Both Verizon and AT&T, along with Sprint, lately have played up the importance of "machine to machine" services that go beyond users making voice calls or browsing the Web.
Earlier this month, looking to expand on the Kindle phenomenon in the U.S., Amazon announced it would sell the device internationally. Eyeing the bulk of mobile networks and potential carrier partners around the world, the company introduced a new version that uses HSPA (High-Speed Packet Access), a form of 3G based on GSM (Global System for Mobile Communications) technology. AT&T, the dominant user of that system in the U.S., provides the book downloads on the new device.
Sprint's 3G system, EV-DO (Evolution-Data Optimized), was left behind except on the Kindle DX, a larger and more expensive model that is still only sold in the U.S. (Owners of the original device still have access to Sprint's network, as before.)
The financial blow to Sprint may not be huge, as it's still providing indirectly purchased bandwidth to users of the older device. But AT&T's entirely logical move may be a sign of what's to come for proponents of mobile systems other than the dominant one. The GSM Association last year claimed there were more than 3 billion GSM connections in the world. There were just over 500 million CDMA subscribers worldwide in the middle of this year, according to the CDMA Development Group.
"The long-term outlook for CDMA for these types of solutions is pretty gray," said Yankee Group analyst Phil Marshall. "Consumer electronics is all about scale. It's all about the mass market."
Sprint is likely to face a similar challenge with the next generation of mobile technologies, as it rolls out a network through Clearwire based on WiMax technology while AT&T, Verizon and many other large service providers around the world gear up for LTE, Marshall said. LTE is backed by the GSM Association, the same organization behind GSM and HSPA.
There may still be room for less widely used systems in business-to-business applications such as monitoring and meter reading, because the devices involved rely less on high volume and low price, he added.
But in at least one respect, mobile operators are at a disadvantage with "connected devices" such as the Kindle. Because consumers don't have a direct relationship with the carrier, providers of devices or the content delivered to them can switch without fear of alienating users.
Marshall doesn't think buyers of the new Kindle will suffer for using AT&T's network, which has come under some criticism for not keeping up with exploding data demand from the iPhone. As AT&T rolls out 7.2M bps (bit-per-second) HSPA, it will close the gap with EV-DO networks and have a smooth migration path to LTE in 2011, he said.
Sprint was disappointed at Amazon's move to AT&T but sees rapid growth and high volume ahead in all types of M2M services on all networks, said Wayne Ward, vice president of emerging solutions at the carrier. For example, Sprint powers the recently introduced Little Buddy Child Tracker, a GPS tracking device from Best Buy's Insignia brand.
"It's really a wide-open landscape right now," Ward said. By contrast, the traditional cellular business has reached maturity in the U.S. as most residents already have mobile phones and are simply switching among carriers, he said. M2M uses of wireless, such as meter-reading, represent solid business opportunities. "These things seem to stay embedded for quite a long time," Ward said.
Ward is also optimistic about WiMax, saying there are about 500 commercial deployments of the technology under way in 130 countries. The first commercial LTE services are forecast to appear next year.
Still, a fast-moving business can be full of uncertainties, as demonstrated by Amazon's switch.
"Just because you incubate new ideas doesn't mean you're going to be the long-term beneficiary," Marshall said.